EBITDA and COMMON ADD-BACKS FOR AMAZON FBA BUSINESSES

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EBITDA and COMMON ADD-BACKS FOR AMAZON FBA BUSINESSES

WHAT IS EBITDA?

EBITDA means earnings before interest, taxes, depreciation, and amortization. It measures a company’s overall financial performance and is used as an alternative to net income when determining its value.

EBITDA focuses on a company’s operating decisions as it reviews a company’s profitability from its principal operations before capital structure, depreciation, and leverage are considered. Furthermore, EBITDA can be used to compare one business to another.

FIVE OF THE MOST COMMON ADD-BACKS FOR AMAZON FBA BUSINESS OWNERS

Let’s look at some common add-backs that Amazon FBA business owners can use to boost business valuation.

THE OWNER’S COMPENSATION

Many successful owners cut excess salaries and compensation compared to what it would cost to hire a replacement. The difference between owner compensation and market compensation would result in a change to EBITDA. An acquirer is unlikely to pay such a large compensation to an owner’s replacement. Thus, the difference between the expected amounts in the future versus what was paid is the add-backs.

TAXES AND BENEFITS

Consider the following scenario. The owner of a business or other employees are leaving the company post acquisition. These individuals’ benefits may be appropriate for add-backs. Additionally, making add-backs for changes to an owner’s benefits necessitates the addition of corresponding taxes.

ONE-TIME OR UNIQUE BUSINESS EXPENSES

A company may incur unusual or one-time expenses that must be handled separately. Many of these can be reasonably reinstated because of their improbability of recurrence. Some examples of these instances are bad hires, discontinued operations, fees related to future business transactions (accounting), recruiting expenses, losses suffered in launching a new initiative, plant closure, and peer-group costs.

LAWSUIT SETTLEMENTS AND SEVERANCE PAYMENTS

While severance payments and lawsuit settlements are uncommon, they may be cause for more due diligence on the buyer’s part. These payments can be an example of a legitimate add-back. Of course, this assumes that these types of settlements are unusual for the company. These should not reoccur in the future to be considered as add-back.

EXPENSES FOR PERSONAL USE

A personal expense is any expense that does not affect the performance of a business. Personal expenses may include a company vehicle and its expenses (e.g., insurance). Other personal expenses are travel expenses, monthly fees to various clubs, meals, mobile phone accounts, entertainment, and family members on the payroll who are not working in the company.

With these add-backs in mind, you can talk to us to know where your business or a business you’re considering stands.

Ecom Brokers is ready to help buyers and sellers alike with transparent business processes and partnerships. We’ve got your back!


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